"...with the uncertainty surrounding the antidumping petition on Chinese bedroom furniture, we are unlikely to take further plant rationalization action until the result of the antidumping action is known"
Kurt L. Darrow, La-Z-Boy president and CEO

La-Z-Boy Incorporated today reported operating results for its third fiscal quarter ended January 24, 2004. Net sales for the quarter declined 3.6% from the same period of fiscal 2003. Earnings per fully diluted share for the quarter were $0.29 -- including a $0.01 per share restructuring charge on an after-tax basis -- compared to $0.41 per fully diluted share earned in the January 2003 quarter.

Consolidated operating margin for the most recent quarter was 5.3%, down from 7.7% a year earlier. La-Z-Boy Incorporated president and CEO Kurt L. Darrow said, "This quarter's operating profit margins were weakened by lower capacity utilization, continued price competition and discounting pressures, particularly in the casegoods (wood) segment of our business, as well as certain specific product-related cost issues. While our current operating margins remain below our expectations, particularly in the casegoods segment, we believe a modest volume increase will provide meaningful upside margin leverage. Meanwhile, we are encouraged by stronger incoming upholstery orders during the most recent quarter, representing a continuation of the positive trend we noted in mid-November. This improved order trend produced a higher upholstery backlog at quarter-end, which should contribute to improved performance during our fourth fiscal quarter."

Upholstery segment
Upholstery segment sales were virtually flat for the January quarter compared to the same period of fiscal 2003, and were down 5.2% through the first nine months of the fiscal year. Darrow said, "Our year-over-year upholstery sales comparisons have shown relative improvement quarter by quarter this year, moving from a decline of 8.5% in the July quarter to unchanged in the just-ended January quarter."

Casegoods Segment
Casegoods segment sales for the January quarter declined 14.0% from a year earlier and were down 13.9% through the first nine months. Darrow noted, "Most of the companies comprising this group continue to face challenges to effectively compete against imported products being directly sourced by large retailers. However, the major element of the quarter's sales decline was the group's hospitality business which caters to the hotel industry, where sales comparison for the quarter were hurt by continuing weakness in the lodging market. The U.S. hospitality market has continued to remain under steady pressure since the September 11th terrorist attacks and is just beginning to show signs of rebounding. Absent the hospitality business in our casegoods group, we have slowed down the negative trends of the last two years and are optimistic we will begin to grow this business by strengthening the service, delivery and quality aspects of this highly competitive business segment."

Casegoods margins for both periods were sharply below those of a year earlier, primarily reflecting the lower sales, increased plant downtime, continued promotional activity and some disruptions resulting from recent plant closures. For the January quarter, the casegoods segment's operating margin was (1.5)% including restructuring charges, down from 5.7% a year earlier -- while the nine-month operating margin fell to (2.0)% including restructuring, from 6.5% in the same period of fiscal 2003. All of this year's third quarter and nine-month restructuring charges related to the casegoods segment.

Darrow said, "As we continue to source product internationally, we are mindful of the critical balance between our domestic production and sourcing capabilities, while striving to maximize our casegoods manufacturing utilization. We will continue our blended strategy of both sourced and domestic product and will closely examine two key elements, quality and delivery times, which are important to the success of our retail partners. We have five casegoods manufacturing facilities for our five companies producing domestic product and with the uncertainty surrounding the antidumping petition on Chinese bedroom furniture, we are unlikely to take further plant rationalization action until the result of the antidumping action is known. However, we actively continue to evaluate other means to grow our volume and reduce costs in these businesses."

Business outlook
Commenting on the current business outlook, Darrow said, "We are encouraged by the recent pickup in our incoming order rate and other external signs that our industry is currently in the midst of a recovery process. Although U.S. employment growth has thus far been agonizingly slow, an increasing number of indicators show the U.S. economy continuing to gain strength, and most observers believe that jobs growth will inevitably follow. Within this context, we currently expect our April fourth quarter sales to be up in the low-single digit range compared to the prior year period, and we anticipate reported earnings for the fourth quarter to be in the range of $0.40 - $0.45 per diluted share."